In his State of the Union address, President Obama compared high-speed rail to the 19th-century transcontinental railroads as parallel examples of American innovation. I fear he may be right.
For the country as a whole, the Pacific Railway Act of 1864 and subsequent legislation subsidizing the transcontinental railroads — the lines that crossed the continent from the 98th meridian to the Pacific Coast — were the worst laws money could buy. By encouraging dumb growth, those laws sacrificed public good for private gain, and Americans came to regret it.
It is not that either transcontinental railroads or high-speed railroads are always bad ideas. A compelling case can be made for high-speed rail between Boston and Washington, for example, but the administration proposes building high-speed lines in places where there is no demonstrated demand. In California, construction of the new high-speed rail line from San Francisco to San Diego will begin with a line from Borden to Corcoran in California’s Central Valley. It is already being derided as the train to nowhere. The reduction of federal subsidies has not stopped the project, which now threatens to become a forlorn monument to hubris.
Proponents of the transcontinental railroads promised all kinds of benefits they did not deliver. They claimed that the railroads were needed to save the Union, but the Union was already saved before the first line was completed. The best Western farmlands would have been settled without the railroads; their impact on other lands was often environmentally disastrous. For three decades California commodities could move more cheaply, and virtually as quickly, by sea. The subsidies the railroads received enriched contractors and financiers, but nearly all the railroads went into receivership, some multiple times; the government rescued others.
As more astute members of Congress came to recognize, the subsidies were a mistake. One described the major drawback of a proposal for the government to guarantee bonds: “If there be profit, the corporations may take it; if there be loss, the government must bear it.”
After 1872, the country turned against the subsidizing of large corporations. It was a little late. Fraud and failure left a legacy that would lead to four decades of government attempts to get back what had so carelessly been given away. In the 1890s, Congress was still trying to recover money from the Pacific Railway.
Yet here we are again. The Obama administration proposed a substantial subsidy, $53 billion over six years, to induce investors to take on risk that they are otherwise unwilling to assume. Such subsidies create what the economist Robert Fogel has called “hothouse capitalism”: government assumes much of the risk, while private contractors and financiers take the profit.
As before, California has become the heartland for railroad dreams. California in the 1860s and 1870s needed a regional railway feeding the ports on San Francisco Bay, and today it needs better urban rail and improved freight systems. Instead, in the 1860s it got the Pacific Railway, and today it gets high-speed rail. And, as it did in the 1860s, California has sweetened the pot with subsidies of its own: a $9 billion bond issue. State law stipulates that the California High-Speed Rail Authority, which is planning, contracting for, and, eventually operating the system, will not get operational subsidies. It, not taxpayers, will pay its operating costs and its debts.
Those assurances are based on rosy and widely ridiculed ridership projections. Critics, the most trenchant of whom are part of the Community Coalition on High-Speed Rail, say that only two high-speed rail routes run without operating subsidies: Paris to Lyon and Osaka to Tokyo.
Without bond guarantees, private investors, which so far seem more prone to due diligence than the California High-Speed Rail Authority, have yet to put up money. The most astonishing thing is that even as financial problems force California to dismantle its social safety net, eviscerate its educational system, and watch its roads crumble, it has agreed on a plan for high-speed rail that demands substantial local subsidies and certainly will involve further concessions by the state to attract private investment.
It is as if a family, with one spouse out of work, unable to meet mortgage payments or school tuition, eagerly takes out a loan to buy an electric car after an uncle offers to share the cost. The catch is that there is no upper limit on the price, and the neighbors have to chip in. Nineteenth-century Americans would have grasped the analogy.